—Please note that this isn’t meant to be a comprehensive review and I would love to hear from you if you have thoughts on their paper or my take on it. We’ve added their paper to the suggested reading list for people joining team Orchard, and I thought it might be a worthwhile exercise to offer some initial thoughts.

It seems like every few months, or so, another article or paper appears that retells the history of online lending. Orchard published one a few years back, and I’ve written one or two on the subject before joining the team last year. And although I personally have no interest in retreading that ground anytime soon as a writer, I do keep up with the reading. The latest example, “When Markets Quake” Online Banks and Their Past, Present and Future,” comes out of the Mossavar-Rahmani Center for Business and Government at the Harvard Kennedy School, written by Marshall Lux and Martin Chorzempa.

The authors paint a mostly positive picture of a rapidly evolving industry—acknowledging the fits, starts, and bumps experienced over its short lifespan, doubtless there will be more as we head into the next leg of the credit cycle but confident that the industry will survive (in one form or another) and that the innovation demonstrated by online lenders will likely continue to have “significant benefits for the financial economy.”

Lux and Chorzempa reference two longstanding trends in financial services and show how online lending is a continuation of these trends. The first, looking back to the 1970’s, they explain how bank deregulation opened the door for bank disintermediation and the creation of the shadow-banking system. Allowing:

“…non-banks like Wall Street firms, mutual fund complexes, money market funds or technology companies to peel away once-profitable bank products. That disintermediation, along with regulation and technology, has reshaped banking over the past five decades, in part by creating a shadow-banking system—non-banks that sell banking products such as loans, mortgages or investment accounts—outside the regulated banking system.”

The authors contrast the mixed legacy of deregulation and shadow-banking by pointing to the subprime mortgage crisis, on the negative side, and the emergence and potential of the online lending industry, on the positive.

The second—and more recent—longstanding trend cited by the authors is the trend of moving financial services online. They describe the emergence of online trading in the early 1990’s and companies like E-Trade, the creation of new ways to make payments by companies like PayPal, and explain how today’s online lenders are direct descendants of these companies.

The pair also provides examples of how banks and online lenders are working together today. The 2016 partnership between Avant and Regions Bank resulted in a co-branded portal that channeled borrowers to one or the other company based on underwriting criteria, and SoFi has sold more than $1 billion of its loans to banks and insurers. This is only a small sample of how these two industries are finding common ground andthis activity will only accelerate in 2017 and beyond.

Lux and Chorzempa acknowledge the net positive effect online lending is having for all market participants. It’s hardly news that lending has been completely changed by online lenders. Just as technology is changing every other aspect of our daily lives, the often complicated and time-consuming process of finding and applying for a loan has been completely digitized, the underwriting process streamlined, and operational costs of lending have been reduced, increasing the potential profitability of originating even small dollar loans. This is helping more borrowers access loans at far more favorable terms than in the past, including thin-file as well as near- and sub-prime borrowers. More broadly, the rise of online lending has also forced bankers and regulators—both notoriously resistant to change—to reconsider how and why the current system exists, their place in it, and how it should evolve to better serve and meet the needs of all stakeholders.

They also acknowledge the constantly shifting industry nomenclature, from P2P, to Marketplace Lending, to Online Lending. But, in my opinion, they don’t take the conversation to the logical next step.

‘Online’ is no longer a differentiator. Lending has fundamentally changed, and being online or having digital operations and processes are the basic requirements to even have a seat at the table. Whether a lender is a bank, specialty finance company, or one of the new non-bank digital lenders, they are simply, ‘lenders’ engaged in ‘lending’. The real differentiators are a company’s chosen funding model and cost of funds, the range of loans they offer, as well as the quality of customer and how cheaply those customers can be acquired.

On the topic of funding models, Lux and Chorzempa state, “The business models most likely to be robust enough to survive through the next downleg of the credit cycle are those with the most diversified funding sources,” but they’ve largely written off the retail channel. Granted, the retail investor will likely not play a large role in the immediate to near-term, but the retail channel still has the potential to become a significant source of funding and critical component of a lender’s diversified funding mix.

The future of retail investing in the space will not be based on active, fractional loan allocations conducted by individual investors via the various lending platforms. More likely, individuals will only begin to invest in this asset en masse, as they historically have in other assets, when it’s possible to invest via retirement accounts into more traditional investment vehicles like mutual funds, ETFs, and the like. In case anyone’s curious or needs an excuse to explore this possibility further, consider that the Investment Company Institute’s 2017 Factbook states that total worldwide assets invested in regulated open-end funds in 2016 were $40.4 trillion.

The real hurdle for developing a viable retail channel is not a lack of mainstream awareness of the asset class, but the lack of liquidity and infrastructure to promote the creation of low-fee mutual funds and other types of investments that cater to individual investors and their advisors.

The co-authors also voice concerns about the risk of standardizing loans to allow for a more liquid secondary market via open-end funds—because of the liquidity mismatch between the open-end fund (often with daily liquidity) and the underlying asset (loans with three-to-five-year maturities). Based on the current state of the industry and the relative illiquidity of loans, their concerns seem reasonable. However, an active secondary market for whole loans could potentially help fund managers and other institutional investors meet redemption requests in a crisis scenario and ultimately promote the creation of more ‘retail-friendly’ investment products. This kind of market may also offer potential benefits to credit risk managers at banks or other institutions, after finding themselves with a need to buy and sell large pools of loans at some point in the future.

Like previous reports and papers on the topic, the authors do a fair job of bringing us up to date while reframing the industry story through the lens of the current environment. Of course, hindsight is 20-20. But even so, their independent perspective as academics makes for an insightful retelling.

Foresight, on the other hand, is a bit more tricky. The authors delve into mounting regulatory pressures and describe the importance of balancing financial innovation and inclusion with regulatory protections, as a key to the industry’s future growth and longevity—particularly in the U.S. and other markets with highly developed banking systems. (For contrast, it’s worth comparing the U.S. and European markets with what is happening in China and Southeast Asia.)

But it’s much too early to tell whether online lending will continue growing as its own distinct industry or—and in my opinion the more likely scenario—eventually morph, along with the rest of the financial services industry, into some analogous yet alien version of itself; a footnote in the broader history of the evolution of financial services and how they became more accessible, better regulatedand efficient with technology.

The shape of things to come is becoming more clear day by day as we collectively connect the dots, but—while we enjoy imagining that future—no one really knows what any of these industries will look like in 15 or even five years time—or what unimagined technologies lay just around the corner.

For an industry subject to the short-term analysis of news cycles, this study provides a deep, detailed assessment of the industry and is worth taking the time to read.